INTERVIEW/Richie Boucher, Bank of Ireland:RICHIE BOUCHER never expected to take charge of a large bank during the worst financial crisis ever experienced by this State. But he says he's up to the challenge of leading Bank of Ireland out of the recession – long-term bad debts of €6 billion aside.
Contrary to the criticism of the appointment of an insider – most notably by financier and Bank of Ireland shareholder Dermot Desmond – Boucher believes he is the right man for the top job.
Desmond opposed Boucher’s appointment because the bank executive had, in his previous role as head of the bank’s Irish business, approved loans to property developers that are causing the bank such severe problems.
Boucher, one of the few bankers to be promoted during the crisis, says finding a successor to Brian Goggin was a “long and drawn-out” process and carried out as the bank was in “a very fast-moving environment” and negotiating with the Government. Decisions had to be made quickly, he said.
“Sometimes you don’t have a luxury of conceptualising what is best. You have to look at what are the needs of the bank at a particular point in time. We had and we have a lot of challenges,” he said.
“I certainly could never have envisaged taking on the leadership of a bank in this kind of circumstance and environment in my wildest nightmares,” he said.
Boucher says the bank accepts it made mistakes, but that “the proof of the pudding” was in how he now dealt with the problems.
The bank had assessed its “collective decisions” of recent years, he says, but he points out that “very few decisions are made by a single person”. He says the bank had suffered from “an over-reliance on economic forecasts” and failed to question “the implausible ‘what ifs’” and if the bank deviated from consensus economic views.
Boucher believes the bank could learn from the Catholic Church and the appointment of a devil’s advocate to argue against the canonisation of a candidate.
It’s an unusual analogy to use, given the general view of bankers and their role in causing this crisis, but Boucher believes the bank must ensure it isn’t always being driven by consensus opinion.
“You have to force debate, start arguments. You have to appoint someone who is the devil’s advocate on a management team and change their hats every now and then so you don’t have a Dr Gloom or a Dr Good Times.”
Boucher also blamed the crisis within Irish and UK banking on an over-dependence on securitisation – where loans are sold on to investors to generate funding to lend more – and the lack of state-sponsored mortgage securitisation that exists in other countries.
Becoming chief executive has meant overturning decisions he made in his earlier roles, such as closing businesses he had opened, which employed people he hired.
These businesses were not mistakes, he said, but had to close in a bid to “deleverage” the bank.
He says the bank has to make decisions on “a very clinical basis”.
“I am not necessarily interested at looking at the process of how we got here but what we have to do,” he said. “None of these decisions are making anyone, me included, out to be particularly macho. Decisions just have to be made.”
Boucher takes no comfort in Bank of Ireland overtaking Allied Irish Banks (AIB) this month to become the largest bank by market value on the Irish bourse, as the stock is still down 92 per cent from its peak two years ago, wiping out shareholders’ returns.
He says judging short-term performance against rivals has helped cause problems for the banks.
“Am I satisfied with Bank of Ireland’s share price when it became a bigger bank than AIB? No, I am not. We have a very long road to go to rebuild shareholder value in this bank,” he says. The next two years will be tough, he says, with a lot of “bumps” along the way.
However, investors responded positively this week to the bank’s full-year results to March 2009, despite a six-fold increase in bad debts and pretax losses of just €7 million, which is quite a reversal from the €1.9 billion the bank made in profits the previous year.
The market was buoyed by the plan to buy back debt from investors which could generate about €700 million in extra capital.
The bank will pay 38 – 50 cent in the euro for €3 billion of debt. The bonds are sitting on the books at a cost of 100 cent in the euro to the bank, so there is an obvious gain for the bank if the investors are willing to sell debt that is trading at distressed prices.
“A lot of debt investors will just say: I’m not that type of investor, I’m happy with the Bank of Ireland, I’m happy with the Irish sovereign and I will hold this thing to maturity. Other people have written it off in their own mind or want to put the money to other use and they will sell out,” he said.
The share price has gained 75 per cent this year, compared with AIB’s 26 per cent decline. This is more a reflection of the varying degree of problems facing the banks when it comes to selling toxic loans to developers and land speculators to the State’s “bad bank”, the National Asset Management Agency (Nama). Bank of Ireland has €12.2 billion in loans to developers; AIB has €21 billion.
“One of the advantages we have is the scale of our issues on a relative basis enables us not to be complacent but slightly more sanguine about what happens,” he said.
Boucher peppers his conversation with references to being “pragmatic”, “mature” and “practical” when it comes to acknowledging and then fixing problems, and working with the Government. He cites the “positives” ahead, including the liquidity created by the Nama bond from the State to be used to buy the loans, which the banks can use to secure European Central Bank funding.
He said the bank fought its own corner, but ultimately had to recognise in talks leading to the State’s €3.5 billion recapitalisation of the bank that “the Government is the Government” and there was “no point in picking a fight”.
Does he believe that other banks picked a fight? “It is very important that, in all these areas, there is a greater sense of realism. One has to move out of denial,” he said. “You have issues and you have problems – there is no point in denying that you have them. It is how you are going to deal with them that is most important.”
The most pressing challenge facing Boucher is the creation of Nama and how it will work with the bank in acquiring those €12.2 billion in development loans and related assets offered as collateral.
Speaking hours after the bank raised its expectation for bad debts for the three years to March 2011 to its earlier “stress” level of €6 billion, Boucher says the bank is realistic about its estimates.
Despite divergent views, Boucher is upbeat that the bank will not need further capital – nor will it cede a large equity stake to the Government – when the bad loans are bought by Nama, whatever the knockdown price the State pays for the loans.
“As Nama is set up, whether they want to deal with them [loans] all in one go or deal with them in parcels, we will be able to achieve that,” he said.
Boucher says the very large loans concentrated among a small number of borrowers across a variety of banks with “significant cross-securitisation” will “probably be moved into the centre” and managed intensively by Nama.
“On a personal basis, I have had experience of work-outs in the US, UK and Ireland. One of the biggest issues is getting all the banks in one room and getting all the security on one table and saying we all have to work together,” he said.
Boucher worked on the restructuring of Larry Goodman’s meat processing group in the 1990s following the collapse of the business with €500 million in debts. He represented Ulster Bank on a committee of six banks which, in turn, represented 35 lenders. He said that features of the Goodman corporate rescue were still relevant.
“It is being hard-nosed but pragmatic. You have to leave emotion out of these things. You have to be very clear-cut on what needs to be done. Sympathy or anger can be quite dangerous in that situation.”
Still, he concedes that every restructuring is different and there is no “play book” on past rescues that can inform the bank on fixing its current difficulties.
“In some cases it is absolutely vital that you bring in an entirely different bunch of people to deal with the situation and you sever all links with the management teams.
“In other cases, you work with them. It just depends on a very cold-eyed assessment of what you need to recover the most amount of money.”
ON THE RECORD:
Name: Richie Boucher
Position: Chief executive, Bank of Ireland
Age: 50
Home: Clontarf, Dublin
Family: Married with two teenage children
Hobbies: Sport and reading
Background: Born in Zambia to a Dublin father and Cavan mother, he grew up in Zimbabwe where his father worked for a mining company. He moved to Ireland at 17 and attended at Rockwell College in Tipperary and later Trinity College Dublin, studying economics.
Career:He started in banking at the State-owned ICC before stints at Ulster Bank, NatWest and Royal Bank of Scotland where he worked for three years in London.
He joined Bank of Ireland in 2003, working for the corporate division before heading the Irish retail operations. He succeeded Brian Goggin as chief executive in February, attracting criticism to the bank over the appointment of an insider.
Something you might expect: He speaks with an Afrikaans colonial twang. His mother joked that he didn't pick up an Irish accent because he is tone deaf.
Something that might surprise you:He coaches his son's under-13 rugby team.
